Whether CIT(A) was justified in refusing to admit additional evidence — Held, No

ITAT ‘A’ Bench, Jaipur

A.Y. : 2002-03. Decided on : 20-6-2008

Counsel for assessee/revenue :

Mahendra Gargieya/P. C. Sharma

The assessee was served notice u/s.143(2) of the Act on
29-10-2003. Thereafter, the assessee was given various opportunities and show
cause for producing the documents in support of the return filed. No one
appeared and the AO proceeded to make an ex-parte assessment u/s.144 of
the Act. The AO treated the addition to the unsecured loans and share
application money during the year as unexplained u/s.68 of the Act and added the
same to the income of the assessee. The AO further denied the claim of the
business loss of Rs.1,77,365 and treated the business income as Nil. Before the
CIT(A), the assessee contended that all the documents/evidences were given to
the counsel of the assessee and that the assessee was totally dependent upon his
counsel for representing the matter before the AO, but he did not care to attend
the proceedings. It was submitted that the assessee should not be made to suffer
for the serious lapse on the part of his counsel. The assessee stated that upon
receipt of the assessment order it came to know for the first time about the
additions made by the AO. The affidavit in this regard was filed before CIT(A).
The assessee contended that the circumstances were beyond the control of the
assessee and therefore, assessee was prevented by sufficient cause from
producing the documents/evidence before the AO. The assessee filed an
application under Rule 46A and produced the necessary evidences, before the
CIT(A), which were, in the opinion of the assessee, required for disposal of the
case. The CIT(A), upon receipt of the application along with documents/evidences
sent the said application along with documents/evidences to the AO. In response
thereto, the AO wrote a letter to the CIT(A) stating that assessee had not
appeared and had not produced any evidence despite various opportunities and now
on the basis of evidence filed before the CIT(A), the said loans and share
application money are verifiable from the books of the assessee. Upon receipt of
the letter from the AO, the CIT(A) held that none of the conditions specified
under Rule 46A are fulfilled and therefore he refused to admit the additional
evidence and confirmed the action of the AO. The assessee preferred an appeal to
the Tribunal.

The explanation of the assessee appears to be bona fide
and the assessee was prevented by sufficient cause from producing the evidence
which it was called upon to produce before the AO. Therefore, the CIT(A) was not
justified in not admitting the additional evidence under Rule 46A of the
Income-tax Rules, 1962.

When the application under Rule 46A along with documents was
sent to the AO and the AO in his letter to the CIT(A) stated that on the basis
of evidence filed before the CIT(A), the said loans and share application money
are verifiable from the books of the assessee, then the CIT(A) within his power
under sub-rule 4 of Rule 46A could direct the AO to examine the
documents/evidences filed by the assessee to dispose of the appeal.

The powers of the first Appellate Authority are very wide and
co-terminus with those of the AO and what AO can do, he can do and what AO fails
to do, that also he can do [refer Kanpur Coal Syndicate, 53 ITR 225 (SC)]. S.
251 and S. 252 of the Act have also been worded keeping the same spirit, as also
Rule 46A.

S. 250(4) empowers the CIT(A) to make further inquiries on
its own or to direct the AO to make further inquiry and to report to him.

The embargo put on his power under Rule 46A(1) and (2) has
also been loosened by sub-rule 4 which empowers the CIT(A) to direct the
production of any document/examination of witness, to enable him to dispose of
the appeal. Thus, the legislative intent is quite clear and the CIT(A) should
not jump straightway to reject, if the appellant files some evidence before him
under the provisions of Rule 46A(1).

The powers of the CIT(A) as submitted above are also to be
interpreted in the context of the amended law, wherein he is no more empowered
to restore back any matter which was earlier u/s.251(1)(a), necessitating a
compulsory admission of the evidence before him in the interest of justice.

Since all the evidences have to be examined by the AO,
therefore, in the interest of justice, the matter is restored back to the file
of the AO who will examine the evidences filed by the assessee before the CIT(A)
and decide the issue de novo, but by providing adequate opportunity of
being heard to the as-sessee. The assessee may submit further documents or
evidences as required in support of his claim before the AO. The AO is directed
to act accordingly.